Technology Transfer via Intl Licensing Agreement - Implications for Developing Countries- Yumi Ejiri March 4, 2005 Friday Session
Technology for Economic Growth
Channels of Intl Technology Transfer
International Licensing Agreement and ITT
Intellectual Property Rights (IPR) and ITT
Implications for Developing Countries
1. Technology for Economic Growth (1/2)
Technology contributes to economic growth through:
Expanding new market frontiers
Increases in productivity in industrialized countries depend on INNOVATION.
Increases in productivity in developing countries depend on IMPORTING FOREIGN TECHNOLOGY .
For the relationship b/w transfer of foreign technology and economic growth in developing countries, see: Chenery and Bruno (1962), McKimon (1964), Bacha (1984), Taylor (1990, 1993) and Zhang and Zou (1995)
1. Technology for Economic Growth (2/2)
Economic Theories on Technology and Growth:
“ Endogenous” theories of economic growth (Romer, 1986; Grossman and Helpman, 1990, 1994)
Once created, knowledge can spill easily in to the hands of others at zero marginal cost (Arrow, 1962)
Much technological knowledge cannot in fact be transmitted easily to others; they can be transmitted only at a cost through imitation and apprenticeship (Nelson, 1992)
2. Channels of Intl Technology Transfer
Foreign Direct Investment (FDI)
International Licensing Agreement
Intl Trade in Goods– Imports from abroad
Movement of people
3. Intl Licensing Agreement and ITT (1/2)
Purchase of production or distribution rights and the underlying technical information and know-how.
Licensor Licensee LICENSE PERMIT TECHNOLOGY TRANSFER ROYALTY PAYMENT LICENSING AGREEMENT Responsible for granting technology, incl. training, materials and other TA. Responsible for product warranty and other agreed deeds (custody of secrecy ,etc.)
3. Intl Licensing Agreement and ITT (2/2)
Hands-on Features of Licensing Agreement
Licensee needs capacity to learn and investments to apply technologies into production process.
MNEs are more keen to transfer conventional technologies than the latest high technologies.
Determinants: IPR protection, information about local market, market size, anticipated growth, political/social stability (investment climate), etc.
4. Intellectual Property Rights and ITT (1/2)
Intellectual property refers to creations of the mind: inventions (patents) , literary and artistic works, and symbols, names, images, and designs used in commerce.
A patent is an exclusive right granted for an invention , which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem.
A patent provides protection for the invention to the owner of the patent. The protection is granted for a limited period, generally 20 years.
--- from WIPO website.
In general MNEs prefer to invest in / license out to where IPR laws are adequately established.
4. Intellectual Property Rights and ITT (2/2)
IPR and Developing Countries
TRIPS/WTO also calls for effective use of IPR for development. - Article 7: IPRs should contribute to the promotion of technological innovation and the transfer and dissemination of technology. - Article 8.2; Appropriate measures, provided they are consistent with the provisions of the Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology." - Article 66.2: obligations of developed countries to provide incentives to their enterprises and institutions to promote technology transfer to LDCs.
More Information on:
5. Japan’s Experience (1/2)
Opening the country in 1853 – Post WWII c.1970.
Catching up to West
“ Industrialization free of foreign ownership/control.”
Strict Technology Transfer Policies
Heavy restrictions on inward-FDI until 1970.
Licensing of foreign technology was aggressively encouraged.
Scrutinize inward foreign technology transfer
5. Japan’s Experience (2/2)
Quick in learning and improving on imported technology ( creative imitation ) - Investment in R&D and education.
Clear objectives and finely-tuned policies.
Close government-business cooperation in promoting export industries
Foreign suppliers continued to license out to Japan despite their heavy restriction – WHY? - The technologies Japan wanted in its post-WWII was mature and conventional by Western standards.
6. Implications for Developing Countries
Conventional technologies (by Western standard) are more easily licensed out by foreign firms.
Foreign suppliers tend to license out to the countries where IPRs are well protected.
Adopt, adapt, and create are the keys to growth on technology transfer.
Circumstances changed from Japan’s case – MNEs are more sensitive to ITT; FDI is seen less exploiting; global trend for liberalization.
Purchasing of licenses costs money.
7. Action Plans (1/2)
Adopt technology transfer laws that ensure incoming technologies do benefit domestic economic development.
Target at (1) standardized technology , toward (2) strategically important industries .
Establish incentive system that encourages firms to step into adopting foreign technologies.
Strengthen IPRs protection .
7. Action Plans (2/2)
Enhance absorptive capacity
Adopt holistic policy framework overarching various channels of ITT – FDI, licensing agreement, goods imports and movement of people.
Improve the investment climate in general.
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